Five Oil Stocks to Buy Amid a Market Correction

Paul Dykewicz

Five oil stocks to buy amid a market correction offer investors a way to profit during the new year.

The new year is expected to produce a continued recovery in the energy sector on multiple levels led by a post-COVID demand rebound, according to a recent analysis by BofA Global Research. Four of the five oil stocks to buy amid a market correction feature U.S. oil companies that are significantly undervalued, BofA opined.

Environmental, social and governance (ESG) concerns weigh on many individual and institutional investors who seek to assign a value to clean energy, social consciousness and leadership, executive pay and shareholder rights. Traditional oil stocks are not meeting the ESG standards of certain investors who are rejecting the purchase of those stocks based on non-financial factors.

Five Oil Stocks to Buy Amid a Market Correction and ESG Fallout

The shunning of oil stocks by certain investors has led to a valuation mismatch with their true worth based on traditional financial metrics. BofA described the situation of the market assessing the value proposition of “old energy” stocks compared to a realistic pace of any transition to clean energy. In addition, many traditional oil stocks are boosting their free cash flow rather than focusing on growth as they might have done years ago.

“With what we see emerging as a reasonable long-term oil range of $60-80, we believe the sector can regain a 5% S&P 500 weight, positioning ‘old energy’ as relevant again in the eyes of investors,” BofA wrote. 

As a result, the investment firm’s strategists are overweight in energy stocks. Oil prices currently are creeping above $85/bbl.

“Energy is the poster child for inflation protected yield, with the highest free cash flow yield and highest inflation beta of all sectors,” BofA commented.

Five Oil Stocks to Buy Amid a Market Correction and Saudi Effect 

The favorable outlook for oil is strengthened by the idea that if not challenged for market share, Saudi Arabia has “de-facto control” of pricing for the commodity. BoA’s frame of reference is 1998, the last time Saudi Arabia exploited a demand crisis to its advantage.

In a post-COVID-19 world, BoA counseled that Saudi/Russian self-described “regulatory” actions to contain price volatility offer implicit support for the long-dated oil outlook.

“Our approach to valuation is different by design — defined by sustainable free cash, at a market-based cost of capital,” BofA wrote. The result could be “unprecedented” capacity to return cash to investors, with average sector free cash flow yield of 20% in 2022, the investment firm wrote.

ExxonMobil Leads Five Oil Stocks to Buy Amid a Market Correction

Exxon Mobil Corporation (NYSE: XOM), a multinational oil and gas company headquartered in Irving, Texas, received a $100 price objective from BofA. Among the major oil companies, XOM ranks as the investment firm’s top pick.

The company’s management seems committed to returning cash instead of deleveraging, BofA wrote. With initial debt targets likely achieved in early 2022, a return to a competitive dividend could produce a 5x increase and still leave $3.5 billion of free cash, or 15% of its current market value, available for a share buyback, the investment firm added.

“Having navigated the collapse in oil prices with its dividend intact, XOM is the only major to emerge with a long list of organic growth opportunities poised for an inflection in free cash flow,” BofA wrote. 

Chart Courtesy of www.stockcharts.com

The top holding in the Energy Select SPDR (XLE) exchange-traded fund is Exxon Mobil, said Bob Carlson, who leads the Retirement Watch investment newsletter. Carlson, who also serves as a pension fund chairman, added that energy stocks had a strong finish to 2021, and most of the factors that drove those gains continue in 2022.

Plus, inflation is likely to remain high for much of this year and perhaps longer, Carlson continued. Energy stocks traditionally are a good inflation hedge, he added.

Pension and Retirement Watch chief Bob Carlson takes questions from Paul Dykewicz.

Jim Woods, who leads investment advisory services, personally is recommending Exxon Mobil in the Income Multipliers portfolio of his Intelligence Report investment newsletter. Woods, who also heads the Successful Investing investment newsletter, as well as the Bullseye Stock Trader and High Velocity Options advisory services, produced a 56.9% return on his recommendation of XOM to his Intelligence Report subscribers in 2021.

Jim Woods and Paul Dykewicz discuss stocks to buy.

Five Oil Stocks to Buy Amid a Market Correction Include Chevron

Exclusive  Elon Musk Signaled Three Stocks to Consider Buying

Chevron Corp. (NYSE: CVX), a San Ramon, California-based multinational energy corporation, operates in more than 180 countries and is a buy recommendation of BofA. The investment firm’s $150 price objective, up from $140 previously, assumes an average of $60 Brent / $56.50 WTI. 

BofA identified three key risks to the oil company achieving its price target. They are: (1) commodity price volatility, (2) operational execution, particularly on new projects, and (3) inability to capture the price environment due to cost pressures such as operating expenses, capital expenditures and taxation.

On the other hand, Chevron could top the investment firm’s price target, depending on other factors. The biggest two reasons for an outperformance likely would come from higher-than-expected oil prices and lower-than-projected capital expenditure spending, BofA added.

Chart Courtesy of www.stockcharts.com

Suncor Joins Five Oil Stocks to Buy Amid a Market Correction

Suncor Energy Inc. (NYSE: SU), an integrated energy company based in Calgary, Alberta, specializes in production of synthetic crude from oil sands. SU received a buy recommendation from BofA and price objective of $34. 

With a robust free cash flow outlook underpinned by a roll-off in major project spending and a sector low break-even of $35/bbl. WTI post-dividend, the oil company’s dividend coverage is expected to remain higher than its “big oil” peers. That situation sets the stages for leading cash return growth along with its dividend yield in the 5% range.

BofA recently reinstated coverage of Suncor with a buy recommendation. The investment firm now views Canada as advantaged compared to the U.S. exploration and production (E&P) businesses, marking a significant shift from perceptions just a few years ago, BofA wrote.

“In our view, capital discipline and a necessary pivot to cash returns over perpetual spending on unnecessary growth has leveled the playing field for what was previously seen as a short cycle ‘advantage’ for U.S. E&Ps versus the relatively stagnant production profile of oil sands,” BofA wrote. “Within our valuation framework, which defines value as a function of sustainable free cash flow, we see the relative advantage tipping towards Canada with capital efficiency helped by significant, legacy sunk costs and low sustaining capital.”

Chart Courtesy of www.stockcharts.com

Occidental Jumps into Five Oil Stocks to Buy Amid Market Correction

Exclusive  What A Wonderful World

Houston-based Occidental Petroleum Corp. (NYSE: OXY) is engaged in hydrocarbon exploration in the United States, the Middle East and Colombia, as well as petrochemical manufacturing in the United States, Canada and Chile. The stock received a $52 price objective from BofA Global Research, assuming the average of the base case of $60 Brent / $56.50 WTI. 

Potential risks to OXY attaining its price objective are (1) the oil and gas price and margin environment, (2) significant delays to the new upstream projects critical to its production targets and (3) not seizing the price environment due to cost pressures of operating expenses, capital expenditures and taxation. On the other hand, the price target might be exceeded due to higher oil and gas prices than currently forecast.

OXY stands out for having one of the best free cash flows in the sector, BofA wrote.

Chart Courtesy of www.stockcharts.com

Hess Lands Among Five Oil Stocks to Buy Amid Market Correction

Hess Corp. (NYSE: HES), a New York-based independent energy company engaged in the exploration and production of crude oil, obtained a $131 price objective and a buy rating from BofA. A new plus is that the company’s position in Guyana is transformational for business its size, BofA added.

With Liza Phase 2 in Guyana, the asset becomes self-funding and leading to a free cash flow inflection in share that will continue to expand with subsequent phases, BofA wrote. The stock remains undervalued at current levels, the investment firm continued.

BofA’s $131 price objective assumes oil prices of $60 Brent / $56.50 WTI. Risks to achieving the price objective are (1) the oil and gas price and margin environment, (2) significant delays to the new upstream projects critical to its growth targets, (3) inability to capture the price environment due to cost pressures and (4) negative news flow around the company’s exploratory and appraisal drilling activities.

Outperformance could occur if Hess is helped by higher oil and gas prices than forecast. Plus, after five years of talking about it, Guyana now will become operational for Hess, BofA wrote.

Expect short-term debt paid this year, the first dividend increase by Hess in eight years and “opportunistic” share buy backs, BofA wrote. 

Chart Courtesy of www.stockcharts.com

COVID-19 Cases and Deaths Keep Concerns High

Exclusive  My Three Pillars to Live By

The Centers for Disease Control and Prevention (CDC) reported that the continuing threat of COVID-19 still is leading people to obtain boosters. But more than 60 million people in the United States, or nearly 15%, remain eligible for the vaccinations but have failed to obtain them, said Dr. Anthony Fauci, the chief White House medical adviser on COVID-19.

As of Jan. 26, 251,289,667 people, or 75.7% of the U.S. population, have received at least one dose of a COVID-19 vaccine, the CDC reported. Those who are fully vaccinated total 210,682,471, or 63.5% of the U.S. population, according to the CDC.

COVID-19 deaths worldwide, as of Jan. 26, topped the 5.6 million mark to hit 5,616,046, according to Johns Hopkins University. Worldwide COVID-19 cases have zoomed past 358 million, reaching 358,642,707.

U.S. COVID-19 cases, as of Jan. 26, topped 72 million, totaling 72,117,153 and causing 872,125 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The five oil stocks to buy amid a market correction give investors a path to profit from the rising prices per barrel. People who can withstand the risk of contrarian investing compared to the trend for ESG consciousness could find their returns fueled by focusing on traditional financial fundamentals such as free cash flow.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.

share on:

Like This Article?
Now Get a FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE


img
share on:

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader
LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader
LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener
LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program
LEARN MORE HERE

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader
LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor
LEARN MORE HERE